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MarginSPAN®

SPAN®

  • The SPAN® (Standard Portfolio Analysis of Risk) system is a methodology that calculates risk-based margin developed by the Chicago Mercantile Exchange (CME) in 1988, and it is adopted by major futures and options exchanges as well as clearing institutions around the world. JSCC entered into a licensing agreement with CME and uses the original SPAN® system developed by CME to calculate Clearing Margin.
  • SPAN® methodology calculates the risk arising from a portfolio of futures and options on the account level according to a sensitivity analysis, with consideration given to the nonlinear risk of option contracts. SPAN® margin calculation requires the definition of a Price Scan Range and a Volatility Scan Range, as well as a range of other parameters, including Intra-Commodity and Inter-Commodity correlations.
  • In order to reflect recent price fluctuations in a timely manner, the Price Scan Range, which represents such fluctuations, employs a parameter determination method factoring in volatility index calculated from the option premium (1-day holding period, 99% confidence level). For products which do not involve options, a parameter determination method referencing historical price fluctuations is used (1-day holding period, reference period of 54 weeks, 99% confidence level).
  • For the Volatility Scan Range, which represents volatility fluctuations, a parameter determination method referencing past volatility fluctuations is used (1-day holding period, reference period of 54 weeks, 99% confidence level).

Margin calculations using SPAN®

  • The margin requirement calculated via SPAN® is the worst possible portfolio loss that might reasonably incur by the next day (hereinafter referred to as “SPAN Risk”) taking net option value into account.

Margin Requirement = SPAN Risk - Total Net Option Value

  • SPAN Risk
    SPAN Risk is the worst possible portfolio loss arising from market fluctuation, etc. subtracting loss amounts that can be theoretically offset in that portfolio.
  • Total Net Option Value
    Total net option value is taken into account in order to cover risk arising from option exercise. The value is obtained by subtracting the gross short option value from the gross long option value.
    The value of long options is the possible premium to be received upon offsetting sales or the possible payment to be received by option exercise. On the other hand, the value of short options is the possible premium to be paid upon offsetting purchases or the possible payment to be made upon assignment of exercised option.
    Hence, in the case where the total net option value is positive, it shall be subtracted from the “SPAN Risk” while it shall be added where it is negative.

Examples of Margin Calculation

Example 1.  An investor’s portfolio consists of 5 units of short and 10 units of long TOPIX Futures Contract Month June, as well as 5 units of short and 10 units of long TOPIX Futures Contract Month September. SPAN® calculates the required amount of Margin as follows:

Portfolio

TOPIX Futures

Contract Month June

Contract Month September

Short

Long

Short

Long

5

10

5

10

Net position of each Contract Month is as follows:

Net position of each Contract Month

Contract Month June

Contract Month September

Short

Long

Short

Long

5

5

The net position across Contract Months (June and September) is 10 units of long.
In this case, presuming SPAN parameters as follows:

   Price Scan Range: ¥500,000

Since Margin Requirement for one unit is equal to the Price Scan Range for the Futures concerned, in the above example, ¥500,000 is multiplied by 10 units: ¥500,000 x 10 units = ¥5 million, that is, the required amount of margin requirement is ¥5 million.

Example 2.  An investor’s portfolio consists of 5 units of short and 10 units of long TOPIX Futures Contract Month June, and 3 units of short TOPIX Futures Contract Month September.
SPAN® calculates the required amount of Margin as follows:

Portfolio

TOPIX Futures

Contract Month June

Contract Month September

Short

Long

Short

Long

5

10

3

0

Net positions for each contract month are as follows:

Net position by contract month

Contract Month June

Contract Month September

Short

Long

Short

Long

5

3

The net position across Contract Months (June and September) is as follows:

Inter-month net position

Contract Month June

Contract Month September

Short

Long

Short

Long

2

In addition, the number of Intracommodity Spread (the number of pairs of short and long contracts which can be offset against each other across Contract Months) is as follows:、

Intracommodity Spread

Contract Month June

Contract Month September

Short

Long

Short

Long

3

In this case, presuming SPAN parameters as follows:

   Price Scan Range: ¥500,000
   Intracommodity Spread Charge per Net Delta: ¥50,000

In this example, required amount of Margin shall be obtained by multiplying the inter-month net position by the Price Scan Range, then adding Intracommodity Spread Charge, which is obtained by multiplying the number of Intracommodity Spread Charge per Net Delta by Intracommodity Spread. In short, the required amount of Margins is ¥500,000 x 2 units + ¥50,000 x 3 units = ¥1.15 million.

Price Scan Range calculation Methods

  • Price Scan Range (PSR) is a type of parameter used for calculating margin requirement in SPAN® framework. PSR amount shows the minimum margin requirement when you hold 1 short/long position of Futures contract(for mini-sized Futures contract, the minimum margin requirement is one tenth of PSR). Provided, however, when you hold positions across multiple contract months, and/or combinations of Futures and Option contracts, minimum margin requirement can be increase/decreased. While there are several approaches for calculating PSR, JSCC currently uses the following PSR calculation methods.

    【JSCC’s PSR Calculation Methods】


    ・Volatility Index Method
    ・Adjusted Volatility Index Method
    ・Historical Simulation Method
① Volatility Index Method
(For Nikkei Stock Average Group, 10-year JGB Group, Dow Jones Industrial Average Group and Nifty 50 Group)
② Adjusted Volatility Index Method
(For TOPIX Group, JPX Nikkei400 Group, TOPIXCore30 Group and RN Prime Index Group)

* Volatility Designated by JSCC
① VI on the reference date designated by JSCC.
② Value obtained by multiplying VI on the reference date designated by JSCC by ratio of historical volatility (HV) of the underlying asset in the relevant Commodity Group for past 250 business day counting backwards from the reference date to HV of Nikkei225 for past 250 business days counting backwards from the reference date

On both ① and ②, volatility to be designated by JSCC will be the smaller of the following (i) or (ii); provided that if such value is smaller than the greater of (x) the average VI (or Adjusted VI) for past 250 business days counting backwards from the date on which JSCC calculates SPAN Parameters (hereinafter referred to as the "Reference Date") and (y) the average VI (or Adjusted VI) for past 500 business days counting backwards from the Reference Date, then the value of (x) or (y), whichever is greater, shall be used:
(i) VI (or Adjusted VI) on the Reference Date; and
(ii) the average VI (or Adjusted VI) for past 5 business days counting backwards from the Reference Date.

  • As to Price Scan Range for Nikkei 225 Group, assuming the closing price of Nikkei 225 on the reference date (the last business day of each week) was 14411.86 and Volatility Index was 26.30. Assigning these values to the above formula, we can obtain below formula:(26.30 ÷ 100) ÷ √250 × 2.58 × 14411.86 ≒ 618.48
  • The Price Scan Range applicable for the following week of the relevant reference date is obtained by rounding the resultant value in the above formula upwards to the nearest integral multiple of 30 (630), and then multiplying it by 1,000; that is 630,000. (In this case, margin required for 1 unit of mini Nikkei 225 will be 63,000 (one-tenth of the Price Scan Range).)

③ Historical Simulation Method (HS Method)

*Multiplier for each Commodity Group obtained through HS Method
Larger of the daily price fluctuation ratio for each Commodity Group that can cover 99% of all trading days during the period a. or b. below
a. 4 weeks up to reference date     b. 54 weeks up to reference date
However, if the ratio to cover price movement of the underlying asset deteriorates by an application of PSR obtained by applying the multiplier obtained in the manner described above (N%), then JSCC will set a multiplier (fixed value) until such cover ratio recovers.

Ad Hoc Modification of SPAN Parameters

  • In principle, SPAN parameters are reviewed weekly, and new parameters to be applied in the next week are published on the first business day of each week. Nonetheless, in the event of volatile market movement, JSCC may modify SPAN parameters on a temporary basis.
  • In particular, if closing price of the underlying product group designated by JSCC exceeds the predetermined(*) level (Trigger Date), SPAN parameters related to the product group falling under such conditions will be recalculated, and if the recalculated result is greater the SPAN parameter which is originally scheduled to be in effect next business day following the Trigger Date, the recalculated SPAN parameter(s) will be in effect from the next business day following the Trigger Date. For details of Ad Hoc Modification of SPAN Parameters, please refer to the flowchart below.
  • (*) Pre-determined level means 90% of base value of Price Scan Range for each product group. For example, in the case where base value of PSR for Nikkei Stock Average Group is ¥900, SPAN parameters will be recalculated when Nikkei Stock Average Index moves more than ¥810(=¥900×0.9).
  • Base value of Price Scan Range id obtained by dividing Price Scan Range by Contract Multiplier.

SPAN® FAQ(Frequently Asked Question)

  • I have short (long) positions of TOPIX Futures. How is the required amount of Margin for my position calculated?
    Ans. When you have only outright short (or long) positions for one Contract Month and do not have Options position, the required amount of Margin requirement will be the Price Scan Range of the Futures multiplied by the position (number of units).
  • Is a Margin offset between mini-sized and large-sized Futures contracts permitted?
    Ans. In the margin calculation, risk is entirely offset between mini-sized and large-sized Futures contracts. Thus, for example, if a portfolio consists of 10 units of long mini-sized and 1 unit of short large-sized Futures contracts in the same contract month, the margin requirement becomes zero in the margin calculation. However, as this is just a calculation result using SPAN ®, actual margin requirement is determined by each securities company. For details of actual margin treatment, please ask your securities companies.
  • Is a Margin offset between Nikkei 225 Futures and TOPIX Futures contracts permitted?
    Ans. In the margin calculation, risk is offset between Nikkei 225 Futures and TOPIX Futures contracts to some extent . Thus, for example, if a portfolio consists of 1 unit of long Nikkei 225 Futures and 1 unit of short TOPIX Futures contracts in the same contract month, the margin requirement is smaller than the aggregated amount of each margin requirement per position in the calculation. However, as this is just a calculation result using SPAN ®, the actual margin requirement is determined by each securities company. For details of actual margin treatment, please ask your securities companies.
  • What is “Replacement Deposit”?
    Ans. In the case where cash or securities deposited with securities company by a customer are passed through the securities company and then deposited with JSCC, the portion of such cash or securities is treated as “Direct Deposit.” On the other hand, with the consent of a customer, securities company may deposit with JSCC their own cash or securities which value is equivalent to or more than those deposited by the customer, in that case, the portion of such cash or securities deposited by securities company is treated as “Replacement Deposit.”
  • I would like to calculate the SPAN Risk by myself.
    Ans. The SPAN Risk Parameter File, which is daily published by JSCC, as well as the information on your Futures and Options position are necessary for calculating SPAN Risk. You will be able to calculate is by entering these into application software such as PC-SPAN®.

SPAN® and PC-SPAN® are registered trademarks of Chicago Mercantile Exchange Inc. (CME). All rights concerning SPAN® belong to CME, and JSCC is licensed by CME to use these products. The Chicago Mercantile Exchange assumes no responsibility in connection with the use of SPAN® by any person or entity.